With investors reassured by comments from the Bank of England (BoE) the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has strengthened ahead of the weekend.
Pound Sterling to New Zealand Dollar (GBP/NZD) Softened as New Zealand GDP Bettered Forecast
The New Zealand Dollar (NZD) saw a sharp surge in demand on Wednesday after the dovish tone of comments from Fed Chair Janet Yellen prompted markets to return to a risk-on mentality. With the Fed now forecasting just two interest rate hikes over the course of the coming year, rather than the four hikes initially predicted in December, the ‘Greenback’ (USD) softened markedly. This offered a boost to commodity-correlated currencies, with the ‘Kiwi’ also bolstered by an unexpectedly strong fourth quarter New Zealand GDP report.
While the latest budget from Chancellor of the Exchequer George Osborne failed to boost Pound Sterling (GBP), investors were rather more encouraged by the minutes of the Bank of England’s (BoE) policy meeting. Policymakers voted unanimously in favour of leaving interest rates at their current low, but also expressed a certain amount of confidence in the underlying strength of the UK economy.
New Zealand Dollar (NZD) Exchange Rate Trends Lower with Weaker Consumer Confidence
Despite a lack of further UK data ahead of the weekend the Pound has remained bolstered by hopes that the Monetary Policy Committee (MPC) will not wait as long before hiking interest rates as some economists had feared. Although ‘Brexit’ concerns are expected to continue weighing on sentiment in the coming months, and deterring the BoE from making any policy changes in the meantime, the chances of a 2016 interest rate move appear improved.
Confidence in the ‘Kiwi’, meanwhile, was undermined after the latest ANZ Consumer Confidence Index showed a continued decline in domestic sentiment. As dairy prices returned to a downtrend this week the prospects of the New Zealand economy do not appear to be especially encouraging. With the Reserve Bank of New Zealand (RBNZ) on an easing bias this disappointing data has seen the GBP/NZD exchange rate making fresh gains.
GBP/NZD Exchange Rate Forecast: Volatility Predicted on UK Inflation Data
If the first quarter Westpac Consumer Confidence Index confirms this decline in economic sentiment the New Zealand Dollar is likely to remain on a weaker trend after the weekend. Should February’s Credit Card Spending also demonstrate a loss of confidence within the domestic economy the GBP/NZD exchange rate can expect to strengthen further on Monday.
Tuesday’s UK Consumer Price Index report is likely to trigger renewed volatility for the Pound as weaker inflationary pressure remains a major concern of the BoE. A disappointing result here would be likely to reverse the recent optimism of investors, reducing demand for Sterling as lower inflation reduces the incentive for the BoE to consider raising interest rates.
Current GBP, NZD Exchange Rates
At the time of writing, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending higher around 2.1222, while the New Zealand Dollar to Pound Sterling (NZD/GBP) pairing was slumped in the region of 0.4710.
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